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The Best Blue Chip for 2007: Intel

The past couple of years have been rough for microprocessor titan Intel (Nasdaq: INTC  ) . Before its recent introduction of the Core Duo chips, it had essentially lost its performance throne to archrival Advanced Micro Devices (NYSE: AMD  ) . To add to its woes, Microsoft (Nasdaq: MSFT  ) suffered a series of delays in launching its new Vista operating system, which convinced many companies to hold off upgrading their computers, pushing off some serious potential revenue for Intel.

Fortunately, the past is behind us, and all that really matters to investors is the future. That future looks exceptionally bright for Intel. Now shipping those Core Duos, Intel has shown that it still has what it takes to remain competitive and innovative.

Plus, with a Vista release looking likely for early 2007, the PC upgrade cycle will probably resume along with it. Let's not forget Intel's recent coup, scoring Apple's (Nasdaq: AAPL  ) computer business as well. Apple's move from its long-running IBM (NYSE: IBM  ) and Motorola (NYSE: MOT  ) consortium shows just how strong Intel's position has become. Sure, Apple only represents a small fraction of the overall PC market, but it has long been viewed as an industry pioneer and visionary.

Money screams loudly
This tremendously strong likely future stands in the face of a stock that's stagnating and, as of this writing, is down about 23% from its 52-week high. Often, when a stock's performance is different from the underlying company's prospects, two things turn out to be true:

  • There's a good reason for the difference;
  • There's an opportunity for investors to profit.

In Intel's case, the first point is absolutely true. With its new generation of chips just recently coming online, Intel has already felt the cost of development, but it has not yet reaped the benefits of their mass adoption. Add to that the "wait for Vista" delays in the PC upgrade cycle. In its most recent quarter, Intel reported revenues that dropped 12%, net income that fell 35%, and operating income that dropped 53% from year-ago levels.

With numbers that low, there's really no wonder why Intel's shares are struggling. The big question, though, isn't how poorly Intel has done; it's how well Intel will do. Between Apple, Vista, new processors, and the potential for a decent PC upgrade cycle to finally kick into gear, 2007 looks to be a far improved year for Intel. There's even a fairly good chance that it will be the next dirt cheap dream stock.

Don't take my word for it
But what do I know? In Motley Fool CAPS, the Fool's new community investing intelligence database, I'm one of the lowest-scoring players. Fortunately, I'm in good company, right along with the person who tracks value pioneer Benjamin Graham. The value investing philosophy that Graham espoused and I follow works tremendously well in the long run. In the short term, however, even cheap stocks can get cheaper.

So what do you think? Will 2007 be the year Intel bounces back, revitalized and rejuvenated? Or is it a permanent has-been, destined for the dust heap of history? Click here to join us for free at CAPS and tell us what you think. Is it an outperform or an underperform? Based on your CAPS ratings of Intel and the other blue chips in this contest, we'll declare the best blue chip for 2007 early next week.

To read about the rest of our blue-chip candidates, click here.

At the time of publication, Fool contributor Chuck Saletta owned shares of Intel and Microsoft. Intel and Microsoft areInside Valueselections. The Fool has a disclosure policy.

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